Dr. Reddy’s Laboratories Limited (NYSE:RDY) Q1 2024 Earnings Call Transcript
Dr. Reddy's Laboratories Limited (NYSE:RDY) Q1 2024 Earnings Call Transcript July 26, 2023
Operator: Ladies and gentlemen, good day and welcome to the Dr. Reddy's Q1 FY '24 Earnings Call. [Operator Instructions]. I now hand the conference over to Ms. Richa Periwal from Investor Relations team. Thank you. And over to you ma'am.
Richa Periwal: Thank you Darwin. Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter ended June 30, 2023. Earlier during the day we have released our results and the same is also posted on our website. This call is being recorded and the playback and transcripts shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have our CEO, Mr. Erez Israeli and our CFO, Mr. Parag Agarwal, along with the investor relations team.
Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's expressed written consent. Before I proceed with the call, I'd like to remind everyone that the safe harbor contained in today's press release, also pertains to this conference call. Now I hand over the call to Mr. Parag Agarwal. Over to you, Parag.
Parag Agarwal: Thank you, Richa. Greetings to everyone and a warm welcome to our Q1 FY '24 earnings call. We had a strong start to the year with robust sales and record profitability. I'll start today with an overview of our financials for the quarter. For the section, all the amounts are translated into USD at a convenience translation rate of INR 82.06, which is the rate as of June 30, 2023. Consolidated revenues for the quarter stood at INR 6,738 crores, that is $821 million and grew by 29% on year-on-year basis and by 7% on a sequential quarter basis. Adjusted for brand divestment income on a rebate comparator, the underlying growth was higher at 35% on Y-o-Y basis and 12% sequentially. The growth was driven by the generic business, mainly in US MLD markets and Europe.
Excluding the one-off gains from brand divestment, loss of revenue for divested portfolio and NLEM related price reduction, India business registered a high single digit growth. Consolidated gross profit margin for this quarter has been 58.7% an increase of 880 basis points over previous year and 150 basis points over previous quarter. The improvement in gross margin was primarily driven by favorable product mix, supply productivity savings, better manufacturing leverage, partially offset by brand diversion income during previous period. Gross margins for the global generics and PSPI were at 63.9% and 15% for the quarter, respectively. The SG&A spent for the quarter is INR 1770 crores, which is USD 216 million, an increase of 14% year-on-year while a decline of 2% quarter-on-quarter.
The year-on-year increase is in-line with business growth and is on account of investment in sales and marketing, digitalization and other business initiatives. The SG&A cost as a percentage to sales was 26.3% and is lower by 340 basis points year-on-year and 230 basis points quarter-on-quarter, due to better operating leverage. The R&D spend for the quarter is INR 498 crores, that is USD 61 million and is at 7.4% of sales. Our RND efforts are focused towards building a healthy pipeline of new products across our market, including bio-similar development. The EBITDA for the quarter is INR 2137 crores, that is USD 260 million, and the EBITDA margin is 31.7%. This is largely driven by gross margin expansion and productivity initiatives across the value chain.
Our profit before tax for the quarter stood at INR 1846 crores, that is USD 225 million, an increase of 26% year-on-year and 39% over previous quarter. Effective tax rate has been 24% for the quarter. The effective tax rate was higher than the previous year, mainly due to changes in the company's jurisdictional mix of earnings. We expect our ETR to be in the range of 24% to 25%. Profit after tax for the quarter stood at INR 1403 crores, that is USD 171 million. Reported EPS for the quarter is INR 84.22. Operating working capital increased by INR 710 crores which is just [ph]$ 87 million. Against that, on March 31, 2023 mainly due to an increase in receivables and inventory, our capital investment stood at 362 crores which is just USD 44 million in this quarter.
The free cash was generated before acquisition related payout during this quarter was at INR 674 crores which is USD 82 million. Consequently, we now have a net surplus cash of INR 4985 crores that is USD 608 million, as on June 30, 2023. Foreign currency cash flow hedges in the form of derivatives for the USD are approximately USD 783 million largely hedged around the range of INR 82.7 to INR 84.4 to the dollar. RUB 6775 million at the rate of INR 1.2 to the ruble and AUD 3.7 million at the rate of INR 67.9 to AUD maturing in the next twelve months. With this, I now request Erez to take us through the key business highlights.
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Erez Israeli: Thank you Parag and a warm welcome to everyone participating in our earnings call today. As always, we appreciate your interest in our company. We have commenced fiscal 2024 with a robust first quarter performance. Our sales for quarter one grew 29% and EBITDA grew 20%. Writing the strengths of our portfolio and well diversified geographical spread. Adjusted for settlement income in the current and base period and brand divestment in base period, our sales for quarter one grew 35% and our EBITDA grew 111%. We improved the drivers in our core business for sustainable growth through productivity improvement, market share gains and new product launches, we're making considerable progress across our strategic priorities.
Let me take you through some of the key highlights of the quarter. One sustained strong revenue growth driven by momentum in the US and Russia markets. Two generate healthy EBITDA at 32% and annualized ROCE at 39%. High cash generation leading to net cash shortcuts of more than $608 million at the end of the quarter, after paying the consideration towards main portfolio acquisition for completion of commercial integration activities and launch of many pharmacists acquire generic prescription portfolio. Five received approval for four products in China, including our partner products since April '23, 6th embarked trade generics in India and launched a dedicated trade generic division. Through this initiative, we will be increasing our participation in retail pharmaceutical markets.
Seven entered child nutrition space in India with the launch of Cellar Healthcare Gummies. Eight biologics license application for purpose biochemical [ph]Aritucina candidate DRL_Ri, accepted by US FDA, EMA and MHRA for review. This the key milestone in our global biosimilars journey. Nine for raising to fast growing OPC wellness space in the US with the re-launch of recently acquired brand of Premama, a portfolio of high quality dietary supplements designed to support the entire [indiscernible]. Ten collaborate with Mark Cuban Cost plus drug Company and then increasing access to essential medication for Wilson disease patients and enter into in-license agreement with Tenshi Kaisen for launch of Lorapidine for private label offices. Business eleven enter into agreement with Bill and Melinda Gates Foundation to develop injectable contraceptions drug for low and middle income countries in Asia and Sub-Saharan Africa, including India.
This initiative will threaten our portfolio in the women's healthcare space. Twelve successfully conclude the USFDA inspection of the following four facility recently our API site CTO-1 and CTO-3 at Bolaram. Our formulation site Ftox is FTU 2, and our API site, CTO-6 at Srikakulam. We continue to maintain a state of constant vigilance and compliance at our manufacturing sites. Serfin released our first integrated report which webs together the material aspects of our business and their interplay with our purpose, value, strategy, governance, performance and outlook. The Financial Times of London named us as the ICF Pacific Climate Leader of 2023. This award is to appreciate companies that have achieved the greatest reduction in their greenhouse gas emissions intensity and made further climate related commitments.
Now let me take you through the key business highlights for the quarter. Please note that all references to the numbers in these sections are in respective local currencies. Our North America generic business recorded sales of $389 million for the quarter with a strong growth of 69% and a 25% increase on sequential basis. The growth was bolstered by Lina Dolemide sales. New product launches such as Riga Denson injectable Cyclos Rinse capsules, integration of main portfolio and market share expansion in certainty existing products which more than offset price erosion. We launched eight new products during the quarter and expect the launch momentum to continue during FY 24. Our Euro business recorded sales of EUR 57 million this quarter with year-on-year growth of 13%.
While working flat sequentially, the growth is attributable to increase in base business volumes and supported by new product launches. We launched ten new products during the quarter and expect the launch impetus to continue during balance of the year. Our emerging market business recorded sales of INR 1155 crores with a strong year-over-year growth of 28% and sequential increase of 4%. We launched 27 new products during the quarter across various countries of emerging markets. Within emerging market segment, the Russia business grew by 77% on year-on-year basis and 7% on sequential basis in constant currency. The growth is driven by pickup in allergy season and further aided by lower base. Our India business recorded the sales of INR 1140 crores rupees and reported the growth of 14% include excluding revenue from end divestment, loss of revenue from diversified portfolio and an NLEM related price reduction into business grew in a very high single digit.
India remains a priority market and we are progressing well on our innovation model. We have signed two innovative deals in this quarter and expect this to be an important growth driver in the years ahead. We are creating several growth engines for India business, including ramping up growth of existing portfolio, scaling up recently acquired brands, continuous improvement of field for productivity and foreign into trade generics. Our PCI business recorded sales of $82 million with a year-over-year decline of 11% and sequential decline of 14%. This has been due to lower volume pickup by customer for some products during the quarter. We expect sales to improve over the next couple of quarters on the deck of increasing volume pickup, launch of new products and collaboration opportunities.
Our R&D efforts are focused on developing value operated products, including several generic injectable biosimilars where there is a patient need. We have five four NDS in the US during Q1 of FY '24 and we are on track to accelerate on this balance in the year of FY 24. We are improving our operation and processes to increase efficiency and overall productivity. Our strong balance sheet provide financial flexibility to support future growth and we will continue to maintain a disciplined approach to cash management and acquisitions. I am confident we will continue to grow the growth momentum, strengthen our core business and build a pipeline of products to shape a healthier world. And with this, I would like to open the floor for questions and answers.
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